AUS
NZ
UK
CA
USA
IND
Summary
- Retail investors are flocking to stock markets globally
- The spread of highly contagious Delta variant has slowed down recovery.
- For how long with the stock market rally last?
Despite many negative underpinnings, why aren’t the stock markets reacting?
Note these developments. On August 4, the US reported more than 100,000 COVID-19 infections. This was the highest number in over six months. Dr. Anthony Fauci warned that the Delta variant’s spread can soon double the per day count. In Australia, Sydney reported over 260 new infections in a single day and five deaths due to COVID-19. Many parts of Australia are under lockdown to contain the spread of highly contagious variant.
In Asia, Japan has placed over 70 per cent of its population under curbs. The country is hosting Olympics amid record high new cases of over 15,000. The British Columbia province of Canada reported over 340 new cases on August 4, the highest in over two months.
Economies have yet to recover
The spread of highly contagious Delta variant has slowed down recovery. The economic fallouts are many.
China’s economy expanded 7.9 per cent in the second quarter, a significant fall from record 18.3 per cent GDP growth in the Q1. From housing market to motor vehicle production, most sectors have slowed in the world’s second largest economy. The People’s Bank of China has cut the amount banks hold as reserves to infuse liquidity in the market. In Canada, the Bank of Canada has maintained near-zero policy rates.
But the point is until when will the governments and central banks shoulder the responsibility? In the UK, Bank of England officials have indicated the central bank may soon make a shift from accommodative policy stance in the wake of rising inflation. In the US and Canada, central banks have termed record price rise as transitory, but analysts aren’t convinced. To calm nerves after having said that rate hikes may begin from 2023, the Fed said it is too early to decide on any tightening of policy.
Economic growth has been anything but impressive. Analysts have trimmed GDP growth forecast of the US for the second half of 2021.
Image source: Pixabay
Stock markets are at record highs
Why isn’t there any distress sign in global stock markets? Any losses get recovered soon and investors aren’t reacting to high inflation figures and the Fed’s signals as they usually do. Why?
A survey by Schwab may have answers. It surveyed 1,000 Americans and found that 15 per cent people started trading in stocks in 2020. Estimates are that the brokerage industry added 10 million clients last year, and Robinhood alone added some 6 million. The survey concluded that most of these first timers are optimistic about the market. Despite economic downturn and job losses, stimulus money may have allowed Americans to undertake spending as well as invest in stocks or even cryptocurrencies.
This may be the reason why global stock markets have yet to react to late developments. New retail investors have prevented any sudden selloff like the one seen during the early days of the pandemic.
TSX touches 20,000 milestone
In Canada, the benchmark S&P/TSX composite index touched 20,000 in June 2021. The index was at below 12,000 in March 2020. Nearly 80 per cent gain in just over a year is no mean feat. But on economic count, things are yet to recover. For example, GDP contracted for second straight month in May 2021. Unemployment is at 7.8 per cent and over 336,000 more Canadians must get jobs to take employment to pre-pandemic level. Another worry is high inflation rate which stood at 3.1 per cent in June.
The federal government has extended various subsidies like the Canada Emergency Wage Subsidy until October 2021. This is to give support to the economy. But for how long will this support last?
And for how long with the stocks rally last? Once support programs subside and real macroeconomic elements start pinching, global stock markets might experience a day of reckoning.
